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##### Jim Angel QUESTION 1 1. Jim Angel holds a $200,000 portfolio consisting of the following stocks: What is the portfolio's beta?

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Jim Angel;QUESTION 1;1. Jim Angel holds a $200,000 portfolio consisting of the following stocks: What is the portfolio's beta?;Stock;Investment;Beta;A;$50,000;0.75;B;$50,000;0.80;C;$50,000;1.00;D;$50,000;1.20;Total;$200,000;0.956;1.022;0.853;1.144;0.938;In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows: The bonds have a 7.7% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?;Long-term debt (bonds, at par);$23,500,000;Preferred stock;2,000,000;Common stock ($10 par);10,000,000;Retained earnings;4,000,000;Total debt and equity;$39,500,000;$17,734,265;$23,394,137;$18,866,239;$16,602,290;$19,054,902;QUESTION 3;1. Crockett Corporation's 5-year bonds yield 6.35%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.20%, the default risk premium for Crockett's bonds is DRP = 1.00% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 0.90% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) 0.1%, where t = number of years to maturity. What inflation premium (IP) is built into 5-year bond yields?;2.02%;2.49%;2.43%;2.11%;2.15%;Koy Corporation's 5-year bonds yield 9.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for Koy's bonds is LP = 0.75% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Koy's bonds?;2.36%;3.10%;2.64%;2.70%;3.69%;QUESTION 5;1. Kristina Raattama holds a $200,000 portfolio consisting of the following stocks. The portfolio's beta is 0.875. If Kristina replaces Stock A with another stock, E, which has a beta of 1.50, what will the portfolio's new beta be?;Stock;Investment;Beta;A;$50,000;0.50;B;50,000;0.80;C;50,000;1.00;D;50,000;1.20;Total;$200,000;1.07;1.13;1.18;1.24;1.30;QUESTION 6;1. Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 14.50%. Using the SML, what is the firm's required rate of return?;10.85%;15.53%;13.39%;10.31%;14.86%;QUESTION 7;1. Mulherin's stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.);10.36%;10.62%;10.88%;11.15%;11.43%;QUESTION 8;1. Kay Corporation's 5-year bonds yield 6.20% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the default risk premium for Kay's bonds is DRP = 1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Kay's bonds?;0.52%;0.61%;0.38%;0.50%;0.56%;5 points;QUESTION 9;1. Jim Angel holds a $200,000 portfolio consisting of the following stocks: What is the portfolio's beta?;Stock;Investment;Beta;A;$50,000;0.95;B;$50,000;0.80;C;$50,000;1.00;D;$50,000;1.20;Total;$200,000;0.988;1.215;1.155;1.234;1.225;5 points;QUESTION 10;1. Grossnickle Corporation issued 20-year, noncallable, 8.1% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 19 years to maturity?;$1,132.57;$1,223.69;$1,301.80;$1,353.87;$1,314.82;QUESTION 11;1. Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 13.25%. Using the SML, what is the firm's required rate of return?;10.20%;13.03%;14.50%;12.29%;11.18%;5 points;QUESTION 12;1. A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $900. If the yield to maturity remains at its current rate, what will the price be 5 years from now?;$1,069.75;$698.06;$1,096.95;$906.57;$688.99;5 points;QUESTION 13;1. Kollo Enterprises has a beta of 0.82, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Kollo's required rate of return?;6.73%;6.64%;9.30%;9.56%;8.85%;QUESTION 14;1. Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market's required rate of return is 9.50%, the risk-free rate is 7.00%, and the Fund's assets are as follows;Stock;Investment;Beta;A;$200,000;1.50;B;$300,000;-0.50;C;$500,000;1.25;D;$1,000,000;0.75;8.91%;10.06%;6.77%;8.64%;10.42%;5 points;QUESTION 15;1. Schnusenberg Corporation just paid a dividend of D = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 0.85, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?;$22.16;$26.54;$25.77;$29.37;$27.83;5 points;QUESTION 16;1. Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.5%, the default risk premium for Kelly's bonds is DRP = 0.40%, the liquidity premium on Kelly's bonds is LP = 2.6% versus zero on T-bonds, and the inflation premium (IP) is 1.5%. What is the maturity risk premium (MRP) on all 5-year bonds?;0.38%;0.50%;0.40%;0.59%;0.56%;5 points;QUESTION 17;1. You hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio's beta is 1.12. You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80. What will the portfolio's new beta be?;1.286;1.255;1.224;1.194;1.165;QUESTION 18;1. You hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio's beta is 1.12. You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 2.50. What will the portfolio's new beta be?;1.20;1.152;1.308;0.912;1.008;5 points;QUESTION 19;1. The Francis Company is expected to pay a dividend of D = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.45, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?;$20.92;$22.18;$19.87;$18.20;$21.34;5 points;QUESTION 20;1. Grossnickle Corporation issued 20-year, noncallable, 6.3% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 19 years to maturity?;$1,136.58;$950.79;$1,289.58;$1,049.15;$1,092.86

Paper#29260 | Written in 18-Jul-2015

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